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A potential spat over domain names and AdWord spoiling tactics was resolved before it really began last week. New firm Localist (a subsidiary of NZ Post) filed proceedings against Yellow Pages Group (YPG), after YPG registered the domain names www.localists.co.nz and www.locallists.co.nz, and registered similar Google AdWords.

Internationally, disputes over domain names and AdWords are not new (see my post, Trade marks and AdWords). Some see the ease of registering domains and search terms, and the apparent lack of a sanction, as an open invitation to do so as a spoiling tactic against a potential competitor. But firms should be in no doubt that they are on thin legal ice when they get too close to a competitor’s trade mark or otherwise act in bad faith.

While there are potentially other legal remedies available, the starting point for most disputes involving domain names and search terms is the Fair Trading Act 1986. Among other things, this Act contains a general prohibition on business conduct that is “misleading or deceptive or is likely to mislead or deceive”, and misleading conduct in relation to trade marks. Note that there is no prohibition on “unfair conduct”. It has to be “misleading or deceptive” to a third party.

AdWords

While there has yet to be a New Zealand case on AdWords involving trade mark infringement and / or misleading & deceptive conduct, last year’s European case involving Google and Louis Vuitton did provide some guidance. There is little doubt, for example, that registering and directing a competitor’s trade mark alone to your own website would be unlawful. It gets more murky when a company simply registers an AdWord to block a competitor from registering it. That would be unlikely to amount to trade mark infringement.

Domain names

The primary remedy for .nz domain name dispute is the .nz Domain Name Commission‘s Dispute Resolution Service. Unlike the Fair Trading Act, this service can provide a remedy where a competitor has acted in an “unfair” manner. Disputes unable to be solved informally are referred to experts – including former senior commercial judge Sir Ian Barker and senior IP barristers – for determination. At $1,800+gst, it’s far cheaper than the Court process, though the input of a lawyer in preparing the relevant submissions can be beneficial.

For other TLD domains, it is a matter of using the relevant dispute resolution service, or Court proceedings.

In all cases though, the Fair Trading Act (and other general laws such as passing off) still apply, meaning that Court action can be taken in appropriate circumstances. If non-domain name issues are also involved, it may be more efficient to simply include the domain name complaint in any notices sent to the other party, or Court proceedings filed, than to attempt standalone determination, although it depends on the specific circumstances (e.g. if time is of the essence).

Register!

Localist was successful in forcing Yellow Pages to back down from what clearly seemed to be pretty sneaky behaviour, even if it did take a hefty statement of claim to do so. But the lesson remains: register! A .nz domain name costs all of about $21, or less than 5 minutes of a lawyer’s billable rate. It will probably cost less to register half a dozen domain name variations than it will to get your lawyer to read & reply to your email after a situation has arisen. Firms don’t need to register every possible variation just because an unscrupulous competitor may try to ankle-tap them; there are strong remedies for misleading or deceptive conduct. But at least grab the obvious domain names and (hopefully) prevent any cybersquatting in the first place.

The case, heard by the Employment Relations Authority late last year, hinged on whether Michael Oliver, who did development work for Palmerston North firm Autoweb Solutions, was an employee or a contractor. The Authority determined he was an employee.

The employee/contractor distinction is an important one, and has been the source of a number of court disputes. While the Autoweb case was simply a wage dispute, the employee/contractor distinction could also potentially have intellectual property implications.

The default position under section 21 of the Copyright Act is that (most) copyrightable works created by an employee “in the course” of employment – e.g. software – are owned by the employer (whether or not the employee is actually paid). This is not the case if the person creating the work is a contractor. In that case, the so-called commissioning rule applies (see Copyright ownership and software development). If a developer had been “hired” (as an employee or contractor) to write some specific code, then the employer/hirer will likely have commissioned the work and will therefore own in.

But the situation could easily become more murky, with the possible result that a non-employee developer owns copyright in code they produced for their principal (though not in a “commissioning” situation) – for an example, see “Free design” and the commissioning rule. This cuts both ways: contractors should be careful not to be deemed employees in order to avoid the risk of IP created in the course of a project being inadvertently owned by their “employer”. Note that the words “in the course” are important, as discussed in the recent ERA case of Abbott v Chief Executive, Whitireia Polytechnic [2010] NZERA 766.

As is often the case, a proper contract is the answer – though as the Autoweb case makes clear, it is the substance of the relationship not the labeling of it that is determinative. In the case of employees, it is a legal requirement that there be a written employment contract. Contracts with contractors should clearly state which party retains any resulting IP.

IP dispute leads to Court order to seize source code

Computerworld reports on an Auckland High Court injunction requiring Codeshed, a software developer, to hand over the source code of its software to a customer. The injunction is an interim measure in a wider dispute between Codeshed and its customer, centering on the ownership of the intellectual property in the code. The customer obtained the injunction on a without-notice basis (previously known as an ex parte application) which meant the customer has to give an “undertaking as to damages” – i.e. once the final dispute is heard, if it turns out the customer is wrong, the customer must compensate Codeshed for having the injunction served on it. An ex parte injunction requiring the handing over of valuable IP is a relatively extreme remedy (it can include lawyers turning up on your doorstep with a court order in hand!) but the judge decided it was justified in this case (pending final resolution of the dispute).

According to the article, the matter is now being arbitrated, which usually means it will not be publicly commented on (by the parties) any further.

No iMonopoly for Apple

In Australia, Apple has been told that it does not have a monopoly on the letter “i” for technology products. The Trade Marks ruling said:

“[Apple] has not therefore demonstrated to my satisfaction that the person of ordinary intelligence and memory would be caused to wonder, or be left in doubt, about whether the Goods come from [Apple] merely because the Trade Mark terminates in the letter “i”, however that letter may be presented. Nor do I think the fact that the Trade Mark is made up of the letters of [Apple’s] IPOD trade mark in reverse order would cause a significant or substantial number of relevant consumers to wonder whether the Goods were those of [Apple]”.

Amazon’s 1-click patent confirmed – with a Kiwi connection

Amazon’s infamous 1-click patent has been confirmed by the US Patent & Trademarks Office. To refresh, this patent is “A method and system for placing an order to purchase an item via the Internet” and, on the face of it, covers much of e-commerce. It has been rejected in the EU, and was not applied for in New Zealand. It has been widely criticised (rightly so) since first being granted. In 2005 New Zealand actor Peter Calveley filed a formal challenge to the patent with the USPTO. After some wrangling in the re-examination, Amazon was forced to make some very minor amendments to the patent in 2007. The amended patent has now been re-examined and affirmed by the USPTO.

While this highlights the need for reform of the patent system, a major development may occur next month when the US Supreme Court is expected to rule on the Bilksi case, involving the patentability of business methods.

Peer-to-Patent Australia opens part of the patent examination process and invites the public to review patent applications volunteered for the trial… The process is designed to tap into the expertise of the public to help assess whether a particular application is eligible for a patent.

The system is currently being run as a 12 month pilot programme, limited to business method patent applications.

The original Peer-to-Patent initiative completed a 2 year US pilot in June 2009. While the US Patent Office has yet to report on its results, the first year report from the New York Law School was positive (some criticisms are listed at Wikipedia). The US pilot was not limited to business method patents, although interestingly the patent application which received the most user interaction was such a patent – “Method, apparatus and computer program product for providing status of a process” (hmm, maybe they could also give it a unique name like ps or top?).

It is a good idea for the Australian pilot to be limited to business method patents, which covers most manifestations of software patents. It appears that IP Australia is giving good support to it. Let’s hope that IPONZ watches this closely – IPONZ (like the MED) has good IT systems and has been quite progressive with IT. If the pilot works, it will be a major improvement to a currently in-need-of-improvement system.

Of course, as with any community-driven system, its quality will only be as good as the community supports it. For open source, could it be a case of “many eyes make bad software patent applications unsuccessful”?

Despite what the IPONZ homepage implies, there is no way to prevent someone “having your idea”. A patent comes close, but protects the invention – not simply “an idea” as such.

It is certainly a good thing to be able to use intellectual property law to protect the improper taking of your intellectual property, but making sure someone else doesn’t “have the same idea”? Not a good idea.

Software patents are once again in the news in New Zealand as part of the long-awaited review of the Patents Act 1953. I don’t deal with the filing of patents in my work as a lawyer. Filing patents is a specialist field usually handled by specialist firms, with staff who have qualifications in relevant fields (electronics, engineering, chemistry, biochemistry, etc). But everyone in IT needs to be aware of the threats to innovation posed by software patents.

There has been so much written on this subject (though I have yet to read anything much in favour of them) that I will only add a few brief comments to the debate.

Patents have never been considered inherent rights of inventors. They must be applied for and granted by the state subject to specific terms. They are limited in scope, duration and availability. As was once taught in Form 5 History, the origin of patents in our legal system was the “monopolies” granted by the Kings and Queens of England. After various abuses and reforms (some by way of the English Civil War), the modern system of patents emerged. The economic rationale of granting limited patents was to encourage innovation by protecting the investment made in creating those innovations. By and large, this system worked well over several centuries and could, in fact, be shown to have encouraged many key innovations. In other words, the system worked.

Enter software patents. These can be shown to have the opposite effect (or at least have the likelihood of that) – discouraging innovation, or in some cases attempting to shut down innovation altogether. Software patents operate to limit the possible uses of an infinitely configurable device – the computer. Virtually all computer programs, except the most basic, low-level electrical systems, rely on implementing processes and functions to manipulate and configure a computer to produce a desired result. With software, there are no physical constraints as to how the functions and processes could be used, merged, integrated, or otherwise hacked. The result is an unfettered ability to innovate. This can include, where permitted, freely adapting or integrating someone else’s code to create an entirely new program (the basis of open source software).

Should this ability to innovate be blocked – possibly at a fundamental level – by the fact that someone else has patented the manipulation or configuration of a computer in a particular way? To do so is contrary to the current purpose and rationale of patent law. Software patents have a clear tendency to limit the innovations which may be derived from computers, for economic purposes. Patent law is not intended to protect commercially valuable intellectual property (although that is a valid economic effect). It is intended to encourage innovation. When the opposite result is occurring, it is time to either change the law to correct its operation (by banning software patents), or acknowledge the problem and redraft the law in light of a changed purpose of protecting commercially valuable intellectual property. The stated purpose of the Government’s review is:

“to ensure that [the New Zealand patent regime] continues to provide an appropriate balance between providing adequate incentives for innovation and technology transfer while ensuring that the interests of the public and the interests of Maori in their traditional knowledge are protected.”

Software patents are an international issue. Successive Governments here and overseas make endless statements about “embracing the digital age” to acheive a “high value economy”. Whether the software patent problem is fixed – and soon – will be an early test of their commitment to that cause.